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Creating Buy-In without a Bailout Pat LeBlanc, DVM, MS, Diplomate, ACVA Director, Veterinary Teaching Hospital Michigan State University President, AAVC Creating a sense of financial ownership in a VTH
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Motivating Factor #1 Development VTH-accepted accounting practices. Motivating Factor #2 Individual financial sessions with every service Motivating Factor #3 Input regarding distribution of year end profit Three Motivating Factors
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V Generally Accepted Accounting PracticesVTH Accepted Accounting Practices = /
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Cost accounting is performed on each of the following areas: Dermatology Emergency Service (Small Animal) Equine Med / Surgery Food Animal Med / Surgery General Medicine Internal Medicine Ophthalmology Oncology Orthopedics Soft Tissue Surgery Anesthesia Central Sterilization Clinical Pathology Diagnostic lab Hospitalization Pharmacy Radiology Primary Service Support Service
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Profit / Loss Calculation for each Section Motivating Factor #1 - Accepted Accounting Practices Gross revenues - Discounts Net revenues - Var. Expenses - Fixed Expenses Profit or Loss
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Profit / Loss Calculation for each Section Motivating Factor #1 - Accepted Accounting Practices Gross revenues - Discounts Net revenues - Var. Expenses - Fixed Expenses - Overhead Profit or Loss
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Overhead expenses Motivating Factor #1 - Accepted Accounting Practices Three reception areas Call Center Purchasing Laundry Word Processing Medical Records Info Tech department Business Office Overhead pool is approx $4M
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Overhead expenses Motivating Factor #1 - Accepted Accounting Practices 3 Overhead pools Hospital-wide Small animal only Large animal only Allocation based of sections % of VTH revenue
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“Primary Service Profit alone doesn’t accurately account for what we bring in! It is not the Real Thing” Motivating Factor #1 - Accepted Accounting Practices
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How can we determine the Real Thing? Motivating Factor #1 - Accepted Accounting Practices
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Primary Service Profit + Their contribution to support service profit (downstream profits) = Real Thing!! Motivating Factor #1 - Accepted Accounting Practices Acceptable Real Thing!!
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For every $ of revenue a Primary Service generates, how much profit in each of the support services does that $ generate? Motivating Factor #1 - Accepted Accounting Practices
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Support Service used by Int. Med Ratio of Int. Med codes charged to Support Service Codes charged Radiology141 % Diagnostic lab45 % Pharmacy61.7 % Clinical Pathology89 % Anesthesia24.8 % Hospitalization26 % Central sterilization0.4 % Example: Amount of support service revenue generated by the Internal Medicine Service
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Support service revenue Support service profit margin (profit margin = Ratio of profit to revenue) X = Support service profit generated by the PRIMARY SERVICE Motivating Factor #1 - Accepted Accounting Practices
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Support Service Profit Margin Radiology52.4% Diagnostic lab45.9% Pharmacy36.4% Clinical Pathology 27.5% Anesthesia18.9% Hospitalization- 10.8% Central sterilization - 39.3%
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Usage Ratio Radiology141.0% Diagnostic Lab45.0% Pharmacy61.7% Clinical Path89.0% Anesthesia24.8% Hospitalization26.0% Central Sterilization0.4% Service Revenue $352,500 $112,500 $154,250 $222,500 $62,000 $65,000 $1,000 Profit Margin 52.4% 45.9% 36.4% 27.5% 18.9% -10.8% -39.3% Allocated Profit $184,710 $51,638 $56,147 $61,188 $11,718 -$7,020 -$393 Example: Int. Med revenue of $250,000 Total Allocated Service Section Profit to Internal Medicine for this period: $357,987
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Profit of Primary Service + Portion of Support service profit = Total profit contribution to VTH Motivating Factor #1 - Accepted Accounting Practices
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Individual financial sessions with each service Motivating Factor #2 - Shared information
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Example of a Primary service section profit
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Primary service section with allocated Support service section profits Motivating Factor #2 - Shared information
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Top expense items Motivating Factor #2 - Shared information
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Top expense items Revenue generating procedures Motivating Factor #2 - Shared information
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Top expense items Revenue generating procedures Profit ranking Motivating Factor #2 - Shared information
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Top expense items Revenue generating procedures Profit ranking Top referring vet clinics Motivating Factor #2 - Shared information
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Opportunity to discuss marketing of any or all parts of the service
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VTH Year-end profit Fiscal year ended 1998$573,870 1999$1,210,880 2000$1,615,065 2001$1,560,808 2002$1,649,998
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VTH Year-end profit Fiscal year ended 2003$1,822,115 2004$2,831,260 2005$3,262,184 2006$3,358,556 2007$3,651,602 2008$3,861,931 Projected 2008 profit of $3,843,368 was only off by $18K
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Years 1 – 5 average: $1,322,124 Years 6 – 10 average: $2,985,143 Fiscal Results
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Year end profit distribution approved by: 1. Hospital Management Group 2. Section Chiefs 3. VTH Board Motivating Factor #3 - Faculty input
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Hospital equipment fund 25% Academic departments 75% Motivating Factor #3 - Faculty input 2008 Year End Distribution of Profit
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Increasing number of departmental faculty are paid for by VTH profit Motivating Factor #3 - Faculty input VTH Profits
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Equipment purchases from year end profits Section Chiefs determine major equipment purchases (over $5K) Motivating Factor #3 - Faculty input
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Equipment purchases from year end profits Motivating Factor #3 - Faculty input Creating Buy-In from MOST of the rest of the VTH
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Regularly compare current VTH financials with current forecast to many VTH groups
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“Wow, no wonder the VTH charges are so high!!! Up to date VTH financials presented at: Monthly Faculty meetings Monthly “Chat with Pat” sessions Quarterly Town Hall Meetings Monthly Section Chief Meetings Quarterly VTH Board Meetings
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Staff and Benefit Reductions: Approximately $1M in salary and fringes Elimination of VTH funded travel expenses Other Expense Reductions: Reduction in CareCredit options Reduction in inventory Moratorium on Major Equipment purchases for 2009 Expense cuts in past 6 months
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Informed employees understand staff and benefit cuts Those that don’t either refused to be informed and / or are “rumble strips”
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Always happy Always Happy Generally Satisfied Constant Complainers Staff Happiness is normally distributed
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Always happy Always Happy Generally Satisfied Constant Complainers If you never hear any noise from the “rumble strips”, you might be headed off the road!!
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Summary Factor 1: Well accepted accounting system “Real Deal” Factor 2: Widespread Sharing of information Factor 3: Faculty involvement for distribution of year end profits We are far from perfect but at least we are trying to get to the same spot.
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